Government takes charge of Lloyds

The Government finally took charge of Lloyds Banking Group after agreeing to underwrite £260 billion in "toxic" assets.

Under a deal struck late on Friday night after weeks of detailed wrangling, the Government's stake in the struggling company will rise from 43% to at least 65%.

The Treasury will also buy billions of pounds worth of non-voting shares that could be upgraded later - potentially taking its interest to 75%.

In return, Lloyds has been ordered to help drag the UK economy out of recession by providing £28 billion of extra mortgage and business lending over the next two years.

Ministers appeared to have forced through a far tougher package than envisaged by the Lloyds' board, which had fought to avoid the bank becoming majority public owned.

The premium for insuring against losses on £260 billion of bad assets will be £15.6 billion, or about 6%. By comparison Royal Bank of Scotland, which has struck a similar deal, is being charged £6.5 billion on the £325 billion of assets it has insured.

Lloyds will also have to take an initial hit of £25 billion on any losses before the insurance kicks in - whereas protection for RBS starts after £19.5 billion.

Treasury Chief Secretary Stephen Timms said the move was necessary to give "certainty" for the economy. But he admitted that it was impossible to say how much it would cost the taxpayer.

Pressed on speculation that the final bill could reach £100 billion, Mr Timms told BBC Radio 4's Today programme: "Precedents would suggest that the loss would be a great deal less than that but as I said we just don't know."

He denied that the Government would have been better off simply taking Lloyds into public ownership. "Our view is that banks are best managed in the commercial sector, in private ownership. Our view is that it is important, given that that is the long term arrangement we want to see in place with UK banks, that we should keep the private ownership in place at the moment as well."